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Saving the American Dream? Education Policies in Spatial General Equilibrium

Institute Working Paper 47 | Published March 22, 2021

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Authors

Fabian Eckert University of California, San Diego
Saving the American Dream? Education Policies in Spatial General Equilibrium

Abstract

Children's education and economic opportunities differ substantially across US neighborhoods. This paper develops and estimates a spatial equilibrium model that links children's education outcomes to their childhood location. Two endogenous factors determine education choices in each location: local education quality and local labor market access. We estimate the model with US county-level data and study the effects of a school funding equalization on education outcomes and social mobility. The reform's direct effects improve education outcomes among children from low-skill families. However, the effects are weaker in spatial general equilibrium because average returns to education decline and residential and educational choices of low-skill families shift them toward locations with lower education quality.